How interest rates affect your payment

The interest rate on a loan is used to calculate your monthly payment. The higher the interest rate, the higher your monthly payment. The lower the interest rate, the lower your monthly payment.

Lower your rate and payment with points.
Points are fees paid to the lender at closing. Each "point" is equal to 1% of the loan amount. For a $100,000 loan, a point equals $1,000.

With many loans, you can lower the rate by paying more points. If you have the cash, it's a good way to save money on interest over the life of your loan. See how points affect rates. If you're low on upfront cash, then go for fewer points.

Use the APR to compare loans

Home loans are more than interest rates and points. They also involve other costs. The APR expresses the annual cost of a loan as a percentage, factoring in not only its rate, but the points and other charges over the life of the loan.The Truth-in-Lending law (Check your Truth in Lending Disclosure Statement) requires all advertisements for home loan credit terms include the APR. The APR is intended to enable you to compare terms of loan products from different lenders.

To make an accurate comparison, compare loans with the same terms, interest rates and points. Then look at the APR. The loan with the lower APR is the less expensive loan.